Standish v. Jackson (In re Albertson)
| Decision Date | 31 March 2016 |
| Docket Number | CASE NO. 13–20455,A.P. No.: 2:15–ap–02008 |
| Parties | In re: Harold S. Albertson, Jr., Debtor. Arthur M. Standish as Trustee, Plaintiff, v. P. Rodney Jackson and LAC, LLC, a West Virginia limited liability company and LAC Holdings, LLC, a South Carolina limited liability company, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of West Virginia |
Sarah Ellis, Ancil G. Ramey, Steptoe & Johnson, PLLC, Charleston, WV, for Plaintiff.
Elizabeth G. Kavitz, Kavitz Law PLLC, Ellen S. Cappellanti, William F. Dobbs, Jr., Charleston, WV, for Defendants.
Pending is the motion to dismiss filed by Defendants P. Rodney Jackson, LAC, LLC ("LAC"), and LAC Holdings, LLC ("LAC Holdings") [Dckt. 11].
It is ORDERED that the motion to dismiss be, and hereby is, GRANTED as to Count Two and DENIED as to its residue.
The factual allegations that follow are taken from the operative pleading and treated as entirely accurate for purposes of the motion to dismiss.
On November 6, 2011, Lydia P., a 23–month–old toddler, was tragically injured when a tombstone fell on her. She suffered catastrophic injuries. Lydia P.'s mother retained Debtor Harold S. Albertson, Jr., by execution of a "Contingent Fee Contract." The Contingent Fee Contract provided pertinently that "The undersigned parties hereby agree that Harold Albertson, Attorney At Law ... is retained to ... for a contingent fee of 40% of any recovery." (Compl.¶ 7). At some unspecified point, Mr. Jackson joined with Mr. Albertson in representing the toddler. On July 21, 2012, Mr. Albertson and Mr. Jackson instituted a civil action in the Circuit Court of Wyoming County. On September 17, 2012, a notice of dismissal was executed, apparently to facilitate settlement.
Mr. Jackson, a West Virginia lawyer, is the sole owner and manager of LAC, a West Virginia limited liability company. On February 15, 2013, LAC merged into LAC Holdings, a South Carolina limited liability company. Following his retention by the toddler's mother, Mr. Albertson and LAC entered into certain written agreements. They appear designed to advance money to Mr. Albertson related to the expected fee from the toddler's case. Mr. Albertson was identified as "Seller" with LAC described as the "Buyer." (Compl.¶ 14).
For example, the agreement dated February 27, 2013, obliged Mr. Albertson to convey "to LAC a $83,000 interest ... in the Proceeds" which is defined in the agreement as "The amount of the contingent fee payable to Seller under" a "contingency fee agreement" between Mr. Albertson and his clients in the case involving the toddler. (Id. ¶ 16). Mr. Albertson agreed to pay "Interest/Amount Due" to LAC on a prescribed contingent schedule. The February 27, 2013, agreement, via a "DISCLOSURE TABLE" set the applicable "Interest/Amount Due" depending upon whether the sum was paid within 12 ($182,600), 24 ($401,720) or 36 ($883,784) months. If Mr. Albertson failed to recover his contingent fee, the agreement provided that he was not required to pay LAC anything, unless the failed recovery arose out of fraud, misrepresentation, or the like. The agreement additionally provided that:
(Id. ¶ 19–22). Although the agreement references the payment of "interest" on the $83,000 paid by LAC to Mr. Albertson, it further provides as follows:
Seller agrees to treat and report the sale and purchase of the Purchased Interest as a sale transaction and not as a loan for all purposes (including tax purposes).
(Id. ¶ 23). Paragraph 24 prescribes what will occur in the event Mr. Albertson becomes the subject of a bankruptcy, insolvency or similar proceeding:
If Seller ... has commenced against it any case ... pursuant to any bankruptcy ... prior to payment of the full LAC, LLC interest/payment to Buyer, Seller shall cause the Purchased Interest to be described as an asset of Purchaser (and not a debt obligation of Seller) in any oral or written communications, including, without limitation, any schedule or other document filed in connection with such case....
(Id. ¶ 24). The agreement specifies in its "Reclassification" provision that it is "an investment by Buyer, and not a loan to Seller." (Id. ¶ 25). If a court re-characterized the obligation, however, Mr. Albertson promised that interest would accrue at the maximum lawful rate. In that event, expenses such as attorney fees and costs expended by Mr. Jackson in enforcing his rights under the agreement would be characterized as "reimbursements" to Mr. Jackson. (Id. ).
Attached to the above agreement was "Exhibit 'A' " the effect of which was to reflect prior loans and terms for LAC advances to Mr. Albertson. Exhibit A additionally provided as follows:
Pursuant to that certain Purchase Agreement February 27, 2013 ... I, Harold Albertson hereby authorize and direct P. Rodney Jackson, co-counsel in the Lydia P ... case, to ... pay all sums of money from the Proceeds due and owing by Seller to P. Rodney Jackson, individually, as evidenced by prior written agreements between Seller and P. Rodney Jackson. Such sums shall include evidences by P. Rodney Jackson to Howard [sic] Albertson of $233,000, which shall be paid back without interest. The remaining sums shall be paid back in accordance with the following Exhibits C–F.
(Id. ¶ 40). The parties' course of dealing was repeated in similar fashion with other agreements coming later in time. LAC loaned Mr. Albertson $83,000, $4,000, $10,500, $100,000, $35,000, and $15,000, for a total of $247,500.00.
On March 8, 2013, a letter was sent from Johnnie E. Brown, an attorney with the firm of Pullin, Fowler, Flanagan, Brown & Poe, PLLC, to Mr. Jackson. The letter was apparently in relation to the dismissed litigation relating to the toddler and stated as follows: "I wish to further confirm that we have resolved this case for the sum of $7.25 million dollars." (Id. ).
On May 3, 2013, Mr. Albertson petitioned for approval of the infant settlement in the Circuit Court of Kanawha County. He sought, inter alia, "Payment of $2,850,000 to the attorney for petitioner as attorney fees" and the "Payment of $50,000.00 to attorney for petitioner as reimbursement for expenses incurred in pursuing this claim." (Id. ¶ 45). On July 1, 2013, an order was entered approving the settlement, with a proportionate fee of approximately one-third rather than forty percent.
Mr. Jackson later offered the following record of distribution to Mr. Albertson:
The Trustee asserts that Mr. Jackson provided Mr. Albertson with the following recapitulation of principal and interest calculations for the amounts "loaned":
On September 5, 2013, Amity Real Estate, Ltd., Arman Ray Lewis, and Harold Ray Moles, Jr., petitioned for involuntary relief under Chapter 7 of the Bankruptcy Code against Mr. Albertson. On September 9, 2013, Arthur M. Standish was appointed Trustee. Mr. Albertson did not resist the petition. On November 5, 2013, an Order for Relief was entered.
Inasmuch as judicial approval of the settlement occurred July 1, 2013, Mr. Standish asserts any payment to Mr. Albertson, Mr. Jackson, or LAC from the toddler's litigation would have been within the 90–day look back from the involuntary petition.
Additionally, according to the "Loan Amounts Report," Mr. Standish asserts Mr. Albertson was charged as follows in payment to LAC on or after July 1, 2013:
Mr. Standish contends the applicable interest rates on these repayments would have exceeded 100% in each instance. Mr. Standish pleads three claims against defendants: (1) usury in violation of West Virginia law inasmuch as the monies paid to Mr. Albertson were "loans with interest provisions in excess of that permitted by law...." (Id. ¶ 71) (Count One); (2) illegality, based upon the defendants' failure to comply with certain provisions of the West Virginia Rules of Professional Conduct (Count Two)1 ; and (3) preferential transfers in violation of 11 U.S.C. § 547(b)(Count Three).
In moving to dismiss, Defendants offer four arguments.2 First, they assert the unambiguous terms of the applicable agreements provide that the monetary transactions were not loans, thus eviscerating both the usury and preferential transfer claims. Second, they assert West Virginia law blocks Mr. Standish from recovering damages under Count Two if that recovery is pegged on violations of the West Virginia Rules of Professional Conduct. Third, assuming the claim alleged under Count Two was viable under West Virginia law, Mr. Albertson's putative violation of the same ethical proscriptions would result in both unclean hands and a defense of in pari delicto. Finally, Defendants assert that the usury claim falls short of the plausibility standard of Rule 12(b)(6) as set forth by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and its progeny.3
Federal Rule of Civil Procedure 8(a)(2)requires that...
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